The Check Clearing for the 21st Century Act (“Check 21”) went into effect on Oct. 28, 2004. Check 21 authorized the use of the Image Replacement Document (IRD), also known as the “substitute check”, in the check clearing process. The IRD is a document produced from the image of actual checks. During the imaging process, some types of security features used by financial institutions to protect against fraud are destroyed. For example, features such as micro-printing, heat seals, and colored ink may not survive the imaging process.
There are a number of vendors providing image security features that survive conversion to an image. These technologies include two-dimensional bar codes, and Secure Seal™. However, there are no interoperability standards among vendors. Thus, financial institutions that implement a solution from a first vendor cannot process and verify checks issued from other vendors.
Unfortunately, there are too many vendors of image security features to resolve the issue through bi-lateral agreement. Due to costs and implementation complexity, financial institutions or merchants are also unlikely to be able to support the numerous solutions offered by vendors of image security feature technologies. As a result, verification of a security feature will most likely not occur at the point of presentment (e.g., merchant) or bank of first deposit. Therefore, image security features are only likely to truly protect the issuer of the check and the paying financial institution. This greatly increases the loss exposure to merchants, financial institutions of first presentment, and other parties involved in the check clearing cycle.